Pricing Tranches of a CDO and a CDS Index: Recent Advances and Future Research
by Dezhong Wang of the University of California, Santa Barbara,
Abstract: In this paper, we review recent advances in pricing tranches of a collateralized debt obligations and credit default swap indexes: one factor Gaussian copula model and its extensions, the structural model, and the loss process model. Then, we propose using heavy-tailed functions in future research. As background, we provide a brief explanation of collateralized debt obligations, credit default swaps, and index tranches.
Keywords: Collateralized Debt Obligation, Credit Default Swap, Credit Default Swap Index, Credit Default Swap Index Tranches.